In one of her State of the European Union addresses, Commission President von der Leyen announced the establishment of the NextGen project.
Its ambitious plan is worth €723bn and is considered to be the largest recovery project in Europe since the Marshall Plan. It is the recovery Europe needs now and for the future climate change targets. One may ask whether the tiny archipelago is sufficiently geared to embrace the next hydrogen revolution or rather, regrettably, we are laggards clinging to burning fossil fuel. Change is always challenging.
The policy in 2021, which identified an area of 71,446km beyond territorial waters in offshore waters for large scale renewables paved the way for an Exclusive Economic Zone (EEZ). This opened a potential resource for vast areas in the sea which could possibly accommodate huge investments for green energy generation and possibly hydrogen production. Many ask, what is the rationale for a national policy using LNG in running Electrogas, BWSC and burning diesel in two hired generators? The hairbrained solution to supplement energy generation until such a time that a second inter connector with Italy starts working. The answer unfortunately reveals how present policy does not match our obligations towards net zero by 2050. So now islanders appreciate that as members of the EU family, we also have the obligation to turn green. Our energy minister has been quick to adapt the REPowerEU Plan in 2022 to save energy, produce clean energy and diversify its energy supplies.
The original plan aims to increase Europe's strategic resilience and make it less dependent on Russian gas imports. This year the Commission is calling for action from all levels of government, the private sector and civil society to improve governance and tools for climate risk owners, manage risks across sectors and set the right preconditions to finance climate resilience. Malta needs to comply, even though its tiny superficial area in the grand context of emissions reduction is modest.
Our reliance on burning LNG reflects market conditions before the Ukraine war, which led to a sudden decrease in gas purchased from this source. Alternatives take time, yet it was two years ago, that the Commission launched the European Hydrogen Bank to create investment security and business opportunities for European and global renewable hydrogen production. Hydrogen will play an important role in the EU's transition to climate neutrality by 2050 and in the objective to become independent from Russian fossil fuels well before 2030.
Hydrogen is also one of the strategic areas of the Commission's New Industrial Strategy, with significant potential for quality job creation. Stoically, from 2020 it set out the objective to produce up to 10 million tonnes of renewable hydrogen. Another REPowerEU plan proposes to complement this goal by facilitating 10 million tonnes of renewable hydrogen imports by 2030.
How can this be reached once the project is so capital intensive? First, legislation was proposed for a fully-fledged framework for the production, consumption, infrastructure development and market rules for a future hydrogen market, as well as binding quotas for renewable hydrogen consumption in industry and transport. While several legislative proposals are still in inter-institutional negotiations, it is clear that the European Union will be the world's most advanced region to set up a forward looking, predictable and comprehensive regulatory framework to promote the rapid take-off of renewable and low-carbon hydrogen at continental scale. In parallel to the above-mentioned legislative progress, the European industry has already started to develop a strong project pipeline of hydrogen projects.
The European Clean Hydrogen Alliance identified 840 hydrogen projects across all parts of the value chain and Europe is home to the world's first hydrogen-based steel production projects. Out of 28 EU states, 16 adopted national hydrogen strategies, which collectively amount to 40 GW of electrolyser capacity targeted for 2030 or 5.6 million tonnes of renewable hydrogen. Is Malta a laggard in this revolution which embraces massive capital expenditure to set up floating solar farms and wind structures.
Ideally such structures can be located in Hurds Bank (a relatively shallow bank in the EEZ, where for many years, it was a coveted spot for ships exchanging cargo or oil, exchange of bunkering and other trading patterns - all in a sheltered spot. The next question that faces Malta is the issue and award of a competitive tender to accredited bidders, with the adoption of maritime legislation to house competing providers of hydrogen using electrolysers. What is keeping us from starting to plan how to retrofit Enemalta, BWSC and Electrogas to run on green hydrogen, once hydrogen is imported via a future "Melita" gas pipe? The political wheel at Castille grinds slowly but it grinds. These competitive advantages on EU and the early development of regulatory frameworks have led to many hydrogen project developers planning investments in Europe. Can Malta join the race? Realistically, a vast majority of hydrogen investments in Europe are still at the planning stage, so for such investments to be unlocked on production side, more demand visibility is needed. So far, green hydrogen production via electrolysis is currently hardly produced at scale and currently is not competitive with conventional Blue hydrogen.
At this juncture, the International Energy Agency (IEA) estimates that 2.4 million tonnes per year of export-oriented renewable and low-carbon hydrogen projects will come online and around 10 million tonnes per year by 2030. Not a moment too soon, President von der Leyen announced the establishment of the European Hydrogen Bank with the objective to close the investment gap and connect future supply of renewable hydrogen with a future demand objective of 20 million tonnes of renewable hydrogen. This bank will facilitate both renewable hydrogen production within the EU and imports, contributing to the RepowerEU objectives and to the transition to climate-neutrality.
Its main objective is to unlock private investments in hydrogen value chains, both within the EU and globally, by connecting renewable energy supply to EU demand and addressing the initial investment challenges. Can the Malta Development Bank come to the rescue?
George M. Mangion is a senior partner at PKFMalta
gmm@pkfmalta.com